Eurozone finance ministers have told Greece that the debt-crippled nation will
be granted no further concessions despite Athens' admission that it will
miss its deficit reduction targets.

The warning set up a fresh showdown between the "troika" of the European Union (EU), European Central Bank and International Monetary Fund (IMF), and the Greek government over the payment of a vital €8bn (£6.8bn) bail-out instalment, and sparked a sharp sell-off in European and global markets.

Evangelos Venizelos, the Greek finance minister, claimed that the "troika" had accepted that Greece would fall €4.3bn short of its debt target because austerity had plunged the country into a deeper recession than expected. But eurozone ministers, while conceding that Greece is struggling with recession, made it clear they will not concede on EU-IMF demands for deeper cuts to Greek spending before handing over the next rescue tranche.

"There will be no concessions. There is no mid-October deadline," said a finance ministry official. "They have to make it possible for us to support them."

At a meeting of eurozone ministers on Monday night, Mr Venizelos requested quick payment of the instalment by warning that Greece needs the cash to pay state pensions and salary bills or it will run out of money within a fortnight.

The prospect of a Greek bankruptcy caused the FTSE 100 to collapse below 5,000 points in early trading, before recovering on the back of better-than-expected US economic data to end the day down 52.98 at 5,075.50. European markets fell harder, with the French CAC closing 1.85pc lower and the German DAX 2.28pc down.

European officials said that while Greece had agreed with the EU-IMF "troika" that the deficit shortfall for 2011 could be carried over into 2012 it was not the same as getting agreement from eurozone finance ministers. They added that there will be no decision on the next EU-IMF instalment until the "troika" had concluded a report into Greek finances. Olli Rehn, the European monetary affairs commissioner, said: "I want to do our job first properly."

The latest setback to Greek's public finance has forced the eurozone to decide whether to withhold a second €109bn rescue plan until Athens shows more progress.

Eurozone finance ministers also used Monday night's meeting to discuss plans to increase the "firepower" of the €440bn European Financial Stability Facility (EFSF) euro-wide bail-out fund after pressure from the US, Britain and G20 to leverage it to €2 trillion.

George Osborne, the Chancellor, will urge the eurozone to move urgently on Greece and the EFSF when he arrives in Luxembourg for a meeting of all the EU's 27 finance minister on Tuesday. "The time to resolve the crisis is now. They have got to get out and fix their roof, even though it already pouring with rain," he told the Conservative Party conference on Monday.

"The eurozone's financial fund needs maximum firepower. The eurozone needs to strengthen its banks, and the eurozone needs to end all speculation, decide what they are going to do with Greece and then stick to that decision."